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B. LIPSITZ COMPANY v. ROY WALKER (01/14/87)

filed: January 14, 1987.

B. LIPSITZ COMPANY, A CORPORATION
v.
ROY WALKER, AN INDIVIDUAL, APPELLANT



Appeal from the Order of the Court of Common Pleas of Allegheny County, Civil at No. GD 85-11205

COUNSEL

Conrad A. Johnson, Pittsburgh, for appellant.

James P. McKenna, Jr., Pittsburgh, for appellee.

Del Sole, Kelly and Popovich, JJ. Kelly, J., concurs in the result.

Author: Popovich

[ 361 Pa. Super. Page 240]

This is an appeal from an order of the Court of Common Pleas of Allegheny County denying a petition to strike and/or open a confessed judgment entered against the defendant/appellant, Roy Walker.*fn1 We reverse in part and affirm in part.

On December 30, 1983, the defendant executed a non-negotiable judgment note in the amount of $80,000, payable on demand, in favor of Pittsburgh National Bank. The note contained a confession of judgment clause. On June 25, 1985, the note was assigned by the bank, for value received, to B. Lipsitz Company, the plaintiff/appellee. The next day the plaintiff confessed judgment against the defendant (note plus interest) for $88,948.47.

On July 26, the defendant filed a petition seeking to open judgment, a rule to show cause and a stay of execution. In support of the petition, the defendant averred that he signed the December 30 note merely as an "accommodation" for his then counsel, Herman Lipsitz -- president/joint owner with his wife of B. Lipsitz Company, upon being advised by him that B. Lipsitz Company and the plaintiff were experiencing financial difficulty. He also alleged that he never received any portion of the $80,000 recited in the note.

The court below stayed all execution proceedings, made the rule returnable within twenty days and ordered the parties to proceed in accordance with Pa.R.Civ.P. 209 by order of even date.

[ 361 Pa. Super. Page 241]

On August 21, an answer to the petition to open was filed by the plaintiff denying that it had represented to the defendant (through Herman Lipsitz) that it was experiencing financial difficulty, or that the note was executed simply as an accommodation or favor to it without consideration. On the contrary, the plaintiff alleged that the defendant was indebted to it for $108,648.17 in merchandise (cigarettes and book matches) received but never paid for, and, thus, the requested demand for payment of the debt by the plaintiff was made. The defendant, supposedly, obtained a loan from Pittsburgh National for $80,000 for partial payment on this debt at the request of the plaintiff. When the defendant failed to make payments on principal and interest, the plaintiff was forced to pay back the loan. This was so, according to Herman Lipsitz, because B. Lipsitz Company was the "guarantor" on the note. In turn, after payment of the note was satisfied, Pittsburgh National assigned the judgment note to the plaintiff. Further, the plaintiff specifically denied that no consideration existed in the transaction producing the judgment note.

In the new matter portion of the reply, the plaintiff argued that the defendant's failure to assert equities and a valid defense warranted a denial of his petition to open judgment.

In a response to the rule to show cause order, the defendant contended that he "recently discovered another meritorious defense to the Confession of Judgment", i.e., Pittsburgh National's earlier confession of judgment (of May 6, 1985) on the subject note for $10,000 restricted the assignee (plaintiff) of the same note to the receipt of $10,000 and not $80,000.

The defendant sought leave to amend his earlier petition to open and proceed with depositions and other discovery matter prior to scheduling an argument date. The court agreed and entered an order on September 24 granting the defendant "leave to amend his Petition and . . . to proceed with depositions in accordance with Rule 209."

[ 361 Pa. Super. Page 242]

On November 20, the defendant filed an amended petition alleging, for the first time, that: (1) the plaintiff "fraudulently induced" him to execute the $80,000 note to benefit "Herman Lipsitz and/or B. Lipsitz Company"; (2) Pittsburgh National had already filed a confession of judgment against him (at GD 85-8258) on the same non-negotiable judgment note which the plaintiff based its confession of judgment; and (3) the plaintiff's principal (Herman Lipsitz) fraudulently induced the defendant to execute the note in question in violation of Disciplinary Rule 5-104(A). Lastly, as was argued in the earlier petition, the defendant repeated the assertion that (Attorney) Herman Lipsitz represented that he (Lipsitz) and/or B. Lipsitz Company were experiencing financial difficulty.

A brief in support of the amended petition was filed recounting testimony given during the deposition of Herman Lipsitz and Joel A. Murphy (Assistant Manager in charge of loans at Pittsburgh National), each having been taken on October 8, 1985. In the "Discussion" portion of the brief, the defendant pointed to: 1) the satisfaction of the note prior to assignment causing the assignee (plaintiff) to take subject to all defenses available against the original assignor (bank); 2) the lack of consideration for the note; 3) the existence of fraud by the plaintiff in the securement of the note; and 4) a violation by the plaintiff of Disciplinary Rule 5-104(A), counseling against an attorney and his client becoming intertwined in a venture without there first being full disclosure to and consent given by the client.

The plaintiff likewise filed a brief in support of its contention that the defendant was indebted to the plaintiff.

In an effort to extinguish a portion of the amount owed, the plaintiff argued how it arranged for Pittsburgh National to loan the defendant $80,000, which was secured by a non-negotiable judgment note guaranteed by the plaintiff and credited to the defendant's outstanding account with the plaintiff. Also, mention was made of the disputed difference between an invoice listing $99,699.25 as owed the plaintiff and the $80,000 the defendant purportedly admitted

[ 361 Pa. Super. Page 243]

    owing. This matter was resolved in the plaintiff's favor when it sued in arbitration, at No. 5768 of 1985.

Based on the pleadings, depositions, briefs and oral arguments presented in the case, the court below, by order dated November 25, 1985, denied the defendant's petition to strike and/or open judgment and discharged the July 26, 1985 order staying execution. Thereafter, a motion for post-argument relief, with a reply thereto submitted to the court, was filed and denied. This appeal followed.

Before addressing the issues raised for our consideration, we need to set forth the standards utilized in assessing the denial of a petition to strike and/or open a judgment. The former places upon us a duty to inquire whether an irregularity appearing on the face of the instrument in question existed sufficient to warrant the judgment struck (see Bethlehem Steel Corp. v. Tri-State Industries, 290 Pa. Super. 461, 434 A.2d 1236 (1981)), whereas the latter is an appeal to the equitable powers of the court and its disposition of the petition will not be disturbed on appeal, unless a clear abuse of discretion is shown. See Funds For Business Growth, Inc. v. Woodland Marble and Tile Co., 443 Pa. 281, 278 A.2d 922 (1971). As noted in First Seneca Bank and Trust Co. v. Laurel Mountain Development Corp., 324 Pa. Super. 352, 471 A.2d 875 (1984), the precepts controlling the opening of a confession of judgment are clearly established, i.e., prompt action must be taken by the judgment debtor, allegation must be made to a meritorious defense and evidence of a defense must be presented such that the issues are for a jury to decide.

The first issue to be dealt with concerns Pittsburgh National's exercise of its right to confess judgment supposedly impairing the subsequent execution on the same note by the plaintiff, under the warrant of attorney clause, after the assignment of the note.*fn2

[ 361 Pa. Super. Page 244]

The earlier execution, according to the defendant, exhausted the ability of the assignee to execute on the same note. We agree in part, and do so in a factual scenario which has ...


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